Political limbo puts market in decline for five days

A FIFTH straight day of declines is on the cards today for the FTSE, with UK shares expected to open down this morning, as the uncertainty surrounding an in limbo-government takes a further toll on investor confidence. European shares are actually headed higher after suffering their worst week in 18 months, on the back of hopes that a new financial rescue mechanism can be agreed by the EU to prevent contagion of the Greek debt crisis.

GFT is quoting the FTSE 100 index to open down 25 points from Friday’s close, at a level of 5,098. The German DAX is expected to start higher, up 13 points at 5,728, and the French CAC is forecast to open up 30 points at 3,367. The CAC suffered particularly steep losses on Friday, down 5.3 per cent – the worst performer of the major European stock markets.

Should there be an announcement that an agreement has been reached by Cameron and Clegg, we may well see shares bounce back, but until any details come through we are most certainly on the back foot. The Greek credit crisis, and all the associated doom and gloom – not least the potential for the UK to become “the next Greece” – illustrates the importance of swift decisive action and that seems to be the tonic the markets are demanding. We can expect the wild gyrations in the markets to continue this week, with many traders now treating the current situation as “another Lehman”. The Bank of England’s monthly decision on interest rates is due today, postponed from Thursday due to its clash with the election. There is virtually zero chance of a hike in rates today, although an inflation rate which is spiking higher, up to 3.4 per cent in March, will be starting to be of concern to the policy committee.

Martin Slaney Director, Global Dealing Operations, GFT